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Rental Income and Housing Affordability Highlight a “New Normal” For Young Canadians in the Mortgage Market
Rental Income and Housing Affordability Highlight a New Normal
For Young Canadians in the Mortgage Market
TORONTO (December 8, 2016) Canadians who purchased their first home within the past two years reflect a new normal in the Canadian housing market, according to Mortgage Professionals Canadas fall 2016 survey. Thirty-four per cent of recent first-time buyers think it is important to generate income from their properties, and 13 per cent of those who undertook renovations on their homes did so to add space for a rental unit. Half of 18-34 year-olds do not own a home, primarily because they are saving for a down payment.
Creating income remains a useful tool for first-time homebuyers, said Paul Taylor, President of Mortgage Professionals Canada. People are looking for ways to make owning a home more affordable. Generating income allows them to reduce their mortgage more quickly.
Canadians responding to the survey underscore this point. For homes purchased during 2014 to 2016, the average contracted amortization period is 22.4 years. Each year more than a third of mortgage holders take actions that will shorten their amortization periods. The most recent buyers expect that, on average, they will repay their mortgages in 18.8 years, which is 3.6 years shorter than their average contracted period.
On October 3, the federal government announced that for all insured mortgages, the borrowers ability to afford the payments must be tested using the posted rate, which is currently 4.64% and far above the actual interest rates found in the market.
It is too soon to measure the impacts of this policy change, said Will Dunning, Mortgage Professionals Canada Chief Economist and author of the Annual State of the Residential Mortgage Market in Canada report. The survey finds that among potential homebuyers who expect to be subject to that test, their ability to buy a home will be impaired. As a result, they also expect that there will be negative impacts in the overall housing market and in the broader economy.
34% of recent first-time buyers think it is important to generate income from their property
1-in-5 recent first-time buyers either rent or plan to rent part of their homes
First-time buyers are more likely to rent out part of their homes (11%) compared to those who have owned a home previously (6%), and 20% of 18-34 year-olds plan to rent out part of their home
40% of those who rent part of their home do so to afford their housing costs
13% of those who renovated their homes did so to add space for a rental unit
50% of 18-34 year-olds do not own a home
o Why? 43% are saving for a down payment, 29% lack financial stability and 26% are waiting for prices to decrease
42% of 18-34 year-old mortgage holders found homeownership costs to be higher than expected
9% of homeowners took out equity on their homes in the past year, most commonly to pay for home renovation or repair
The mortgage broker share of the market continues to increase of those who purchased in 2016, 43% used a mortgage broker, 47% used a mortgage representative from a Canadian bank.
The fall 2016 survey found that, currently, 12% of homeowners rent or plan to rent a part of their home (for example a basement apartment). For mortgage holders, this number increases to 16%. Younger Canadians in the 18-34 year-old demographic are the most likely to rent out part of their home, at 20%. Of the individuals who do rent out part of their home, 40% identified that they do so to afford their mortgage costs. Broken down by age bracket, Canadians in the younger and mid-range age demographic (18-34 and 35-54) rent part of their homes to alleviate costs, while older Canadians (65+) do so as a preference.
Sources of down payments: gifts from parents have tripled since pre-1990
In the fall of 2014, Mortgage Professionals Canada began studying down payments made by first-time buyers. While down payment amounts have remained around the 20% mark over several years, the sources of down payments have varied. Personal savings has increased slightly as a source (46% for homes purchased in 2000 compared to 51% for homes purchased between 2014 and 2016) but gifts from parents have doubled (7% for homes purchased in 2000 compared to 15% for homes purchased between 2014 and 2016). This number has actually tripled since pre-1990, when it was 5%. Loans from parents have remained the same (3% for homes purchased in 2000 as well as those purchased between 2014 and 2016) suggesting that parents are giving money to their children rather than loaning it.
The Rising Cost of Down Payments
The rapid rise in house prices has meant that required down payments have increased compared to incomes. For example, a 20% down payment on an average-priced house is now equal to 102 weeks at the average wage in Canada, double compared to 15 years ago.
Consumer sentiment about buying a home
Canadians are less inclined to say that now is a good time to purchase a home. The survey asked the degree to which they agree with the statement that now is a good time to buy a home or condominium in their community. Responses were given via a 10-point scale. This report found the average response was just 5.6 out of 10, a sharp drop of 8% compared to previous years (when the average rating was 6.08). However, 80% agree that real estate is a good long-term investment and 78% would classify mortgages as good debt.
About Mortgage Professionals Canada
Mortgage Professionals Canada is Canadas national mortgage broker channel association representing more than 11,000 members from coast to coast. We recognize that Canadians need and deserve more. We believe in competition as it produces better options and demands ever-improving service and products. We believe in choice as it benefits Canadians and delivers an environment of opportunity. We believe in professionalism as it demonstrates commitment, trust and excellence. The mortgage broker channel is a critical and valuable profession. It creates possibility, fuels the economy and provides Canadians with choice when making among the most important financial decisions of their lives.
The Annual State of the Residential Mortgage Market report is available for download in full by clicking here.
For more information, please contact:
Paul Taylor, President and CEO
Mortgage Professionals Canada
O: 416-644-5465 / C: 905-334-1165
Canadian home sales edge down from December to January
According to statistics released today by The Canadian Real Estate Association (CREA), national home sales were down slightly in January 2017 on a month-over-month basis.
- National home sales declined 1.3% from December 2016 to January 2017
- Actual (not seasonally adjusted) activity in January was up 1.9% from a year earlier
- The number of newly listed homes dropped 6.7% from December 2016 to January 2017
- The MLSHome Price Index (HPI) in January was up 15.0% year-over-year (y-o-y)
- The national average sale price was little changed (+0.2%) y-o-y in January
Sales activity was down from the previous month in about half of all local markets, led by three of Canadas largest urban centres: the Greater Toronto Area (GTA), Greater Vancouver, and Montreal.
Actual (not seasonally adjusted) sales activity was up 1.9% compared to the same month last year. While sales were up from year-ago levels in about two-thirds of all local housing markets including in the GTA, Calgary, Edmonton, London and St Thomas, and Montreal, they were down significantly in the Lower Mainland of British Columbia.
The number of newly listed homes dropped 6.7% in January 2017, the second consecutive monthly decline. New listings were down in about two-thirds of all local markets, led by the GTA and environs across Vancouver Island.
With the monthly decline in new listings surpassing the decline in sales, the national sales-to-new listings ratio jumped to 67.7% in January compared to 64.0% in December and 60.2% in November.
The ratio was above 60% in about half of all local housing markets in January, the vast majority of which are located in British Columbia, in and around the GTA and across southwestern Ontario. A monthly decline in newly listed homes further tightened housing markets that were already in sellers market territory.
There were 4.6 months of inventory on a national basis at the end of January 2017 unchanged from December 2016 and a six-year low for the measure.
The imbalance between limited housing supply and robust demand in Ontarios Greater Golden Horseshoe region is without precedent (the region includes the GTA, Hamilton-Burlington, Oakville-Milton, Guelph, Kitchener-Waterloo, Cambridge, Brantford, the Niagara Region, Barrie and nearby cottage country). The number of months of inventory in January 2017 stood at or below one month in the GTA, Hamilton-Burlington, Oakville-Milton, Kitchener-Waterloo, Cambridge, Brantford and Guelph.
In the Fraser Valley and Greater Vancouver, prices have receded from their peaks posted in August 2016. That said, home prices in these regions nonetheless remain well above year-ago levels (+24.9% and +15.6% respectively).
Meanwhile, benchmark prices continue to climb in Victoria and elsewhere on Vancouver Island together with Greater Toronto, Oakville-Milton and Guelph. Year-over-year price gains in these five markets ranged from about 18% to 26% in January.
By comparison, home prices were down 2.9% y-o-y in Calgary and by 1.0% y-o-y in Saskatoon. Prices in these two markets now stand 5.9% and 4.3% below their respective peaks reached in 2015.
Home prices were up modestly from year-ago levels in Regina (+3.8%), Ottawa (+3.7%) and Greater Montreal (+3.1%). In Greater Moncton, home prices for the market overall held steady (-0.2%), reflecting an increase in townhouse row units prices (5.8%) that was offset by a decline in prices for one-storey single family homes (-1.0%).
The actual (not seasonally adjusted) national average price for homes sold in January 2017 was $470,253, almost unchanged (+0.2%) from where it stood one year earlier.
The national average price continues to be pulled upward by sales activity in Greater Vancouver and Greater Toronto, which remain two of Canadas tightest, most active and expensive housing markets.
That said, Greater Vancouvers share of national sales activity has diminished considerably over the past year, giving it less upward influence on the national average price. The average price is reduced by almost $120,000 to $351,998 if Greater Vancouver and Greater Toronto sales are excluded from calculations.
Canadian Housing Starts Trend Increased in January
The trend measure of housing starts in Canada was 199,834 units in January compared to 197,881 in December, according to Canada Mortgage and Housing Corporation (CMHC). The trend is a six-month moving average of the monthly seasonally adjusted annual rates (SAAR) of housing starts.
CMHC uses the trend measure as a complement to the monthly SAAR of housing starts to account for considerable swings in monthly estimates and obtain a more complete picture of the state of Canadas housing market. In some situations analyzing only SAAR data can be misleading, as they are largely driven by the multi-unit segment of the market which can vary significantly from one month to the next.
The standalone monthly SAAR for all areas in Canada was 207,408 units in January, up from 206,305 units in December. The SAAR of urban starts increased by 1.0per cent in January to 189,688 units. Multiple urban starts increased by 4.2per cent to 125,886 units in January and single-detached urban starts decreased by 4.6 per cent, to 63,802 units.
In January, the seasonally adjusted annual rate of urban starts increased in Ontario and Atlantic Canada, but decreased in British Columbia, the Prairies and Quebec.
Rural starts were estimated at a seasonally adjusted annual rate of 17,720 units.